AM Best Confirms Credit Ratings of Operating Subsidiaries of MGIC Investment Corporation
OLDWICK, NJ–(BUSINESS WIRE)–AM Best affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit rating of “a-” (Excellent) of the operating subsidiaries of MGIC Investment Corporation. The operating subsidiaries are Mortgage Guaranty Insurance Corporation, MGIC Indemnity Corporation and MGIC Assurance Corporation (collectively referred to as MGIC). The outlook for these Credit Ratings (ratings) is stable. All companies are domiciled in Milwaukee, WI.
The ratings reflect MGIC’s balance sheet strength, which AM Best rates as the strongest, as well as its adequate operating performance, limited business profile and adequate enterprise risk management (ERM).
MGIC’s risk-adjusted capitalization, as measured by Best’s capital adequacy ratio (BCAR), is at the highest level under the base and stress scenarios. The base case is analyzed based on the company’s financial statements as of June 30, 2022, which reflect the improvement in the housing market and the reduced impact of the COVID-19 pandemic.
The company’s compliance with Private Mortgage Insurer (PMIERs 2.0) eligibility requirements, the use of traditional reinsurance and mortgage insurance-linked securities to reduce its earnings and capital volatility, its strong liquidity position and its conservative investment portfolio, along with the proven financial flexibility to raise capital during adverse economic conditions, support the fittest balance sheet valuation.
AM Best considers MGIC’s operating performance to be adequate. The company’s claims ratio, combined ratio and percentage of loans in default continued to decline in 2021 and the first half of 2022 compared to the end of 2020. The various programs and policies implemented by the government, government agencies and government sponsored enterprises (GSEs) have been instrumental in mitigating the negative impact of the COVID-19 pandemic on MGIC. MGIC’s average loss, expense and combined ratios from 2017 to June 2022 showed underwriting profitability. Loss and combined ratios in 2021 had fallen below the level of 2019. They fell below 0% in the first half of 2022, mainly due to the favorable development of losses due to the higher than estimated recovery rate initial payment due to COVID-19. Moreover, the percentage of loans in default in the first half of 2022 fell to a level below its pre-pandemic level. MGIC’s expense ratio has grown slowly and steadily over the past few years, primarily due to investments in technology to improve its data and analytics capabilities and its ability to work with a wide range of clients. The company’s credit profile has improved in recent years, primarily due to its improved underwriting standards and the effect of risk-based capital requirements established by PMIER 2.0.
AM Best considers MGIC’s business profile to be limited, as the company is a monoline (re)insurer. In addition, it faces stiff competition from other private mortgage insurers and government agencies (eg, Federal Housing Administration and Veterans Affairs) that offer mortgage insurance. In addition, product risk is considered high because the performance of the mortgage loan insurance industry is strongly linked to the macroeconomic environment and the standards set by the GSEs: Fannie Mae and Freddie Mac. However, this risk is partially offset by the various reinsurance programs that MGIC has used.
AM Best rates MGIC’s overall ERM as appropriate, as the company utilizes a robust ERM framework and infrastructure that is integrated across the enterprise. MGIC’s ERM framework is commensurate with the size, nature and complexity of its mortgage loan insurance business. AM Best considers MGIC’s risk assessment capabilities to be appropriately aligned with its risk profile.
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